Allied-Printed Military Money Caused a Black Market Frenzy in Postwar Berlin


IN APRIL 1944, the US Battle Division was consumed with ideas of France. Operation Overlord, the invasion of Normandy, was solely weeks away, and American and British warfare planners had been enmeshed within the particulars of executing the world’s largest amphibious invasion. Whereas Washington and London’s attentions had been centered on Overlord, a little-noticed determination made elsewhere within the Pentagon set in movement a sequence of occasions that led to one of many first main conflicts between the People and a major wartime ally, the Soviet Union. The affair price American taxpayers tons of of thousands and thousands of {dollars}, embarrassed the Treasury and Battle Departments, and set the tone for the tense relationship forward between the 2 burgeoning superpowers. What prompted the issue? Cash. 

BRINGING THE BACON

Occupation forces want cash they will spend within the native economies, to purchase items and rent laborers. Frank A. Southard Jr., monetary adviser for Allied Forces HQ within the Mediterranean, detailed in his 1946 e book Funds of European Liberation the various restore and rebuilding wants the Allies confronted as they liberated or occupied international locations: “Within the Mediterranean Theater, for instance, 1,500 miles of roads needed to be reconstructed. One American base part in Italy expended over 11 million man-hours on street restore.” The Allies employed native companies to provide all kinds of products, corresponding to “rolling-mill merchandise, yeast, furnishings, coal and coke, and spare components,” wrote Southard, including that “appreciable portions of contemporary meals, primarily vegetables and fruit, had been bought in native markets.” The native inhabitants additionally wants entry to a money provide for their very own enterprise and private wants.

However what if there’s no native cash, or not sufficient? Retreating enemy forces would possibly destroy cash provides, because the Germans tried to do after they deserted Sicily. Or the cash printing amenities may need been razed in battle. In these instances, occupying forces needed to convey their very own forex with them. 

An oversupply of Allied Army Marks, or AMM, launched to fund the occupation of a devastated Germany after the warfare, prompted vexing monetary issues for the US. (Popperfoto by way of Getty Photos)

making a mark 

THE AMERICANS DIDN’T WANT to make use of {dollars} abroad, for a number of causes. In Europe, the aim was to have Germany bear the prices of the occupation. If the Germans didn’t have entry to any {dollars}, that made it simpler to make sure they had been paying occupation prices out of their very own funds and nationwide currencies. As well as, American officers had been involved that {dollars} paid out by the army abroad would possibly find yourself again in the US, which in excessive sufficient quantity may spark inflation. Lastly, and extra ominously, the Battle Division feared that U.S. {dollars} spent in Germany would possibly make their approach into the palms of Nazis, who may then give that cash to their operatives within the U.S. to fund espionage or sabotage operations. The People due to this fact needed an occupation forex that may very well be used solely throughout the occupied international locations.

Governments-in-exile of liberated international locations like France, Belgium, and Holland didn’t need the U.S. to make use of {dollars}, both. It was the “robust want of our allies to keep away from the introduction into their economies of foreign currency,” Assistant Secretary of State for Occupied Areas John Hilldring instructed a Senate committee in 1947. If American {dollars} had been in circulation, the change would probably favor the {dollars} and the native currencies would lose worth.  

So as an alternative, even because the warfare raged on, the People printed billions of {dollars}’ value of occupation currencies—German marks, Italian lire, Japanese yen, Czech kroner, and so forth. The currencies had been in the identical denominations because the native cash they’d complement, however had completely different markings. Marks printed to be used in Germany had been labeled “Alliierte Militärbehörde” (Allied Army Authority). The People finally produced over 500 million notes of what got here to be generally known as “Allied Army Marks,” or AMM. Their complete face worth was greater than 15 billion marks. 

In early 1944 the U.S. Treasury Division employed an American banknote printing firm to create the engraved printing plates for AMM and had draft copies of the notes by February. The People, who had been already planning to provide occupation forex in each theater of the warfare, took the lead and supplied to print all of the AMM that U.S., British, and Russian forces would want in occupied Germany. The British agreed, however the Soviets balked. Assistant Secretary Hilldring instructed the Senate committee that the Russians had been frightened that if the People printed all of the Allied AMM, the Soviets may not have sufficient occupation cash after they wanted it. Hilldring paraphrased the Russian argument: “We agree to make use of your forex, however we can not belief you to print it and to fly it midway world wide to Moscow in time for us to get it to [Soviet general] Zhukov and his troops.” The Russians as an alternative insisted on receiving copies of the printing plates; the Soviets would then print their very own AMM. Assistant Secretary of Battle Howard Petersen testified to the identical Senate committee that, in April 1944, the “Russian authorities despatched a observe to the US stating that if the plates weren’t delivered to the Russians, the Soviet authorities could be compelled to organize independently army marks for Germany” which might have their “personal sample.” 

The People and British opposed having two completely different units of AMM circulating by means of postwar Germany and spent most of March 1944 making an attempt to persuade the Soviets to just accept the American plan. They needed Germany’s financial system to rebound as rapidly as potential, as a robust German financial system would reduce the necessity for the Allies to spend large sums to feed and maintain the defeated nation. The primary industrial space of Germany, the Ruhr, was within the northwest, which might be the British occupation zone. The foremost food-growing areas had been in japanese Germany, the Soviet zone. To ensure that Germany to get better economically—and feed itself—Germans had to have the ability to commerce throughout the entire nation, not simply inside occupation zones. “Using a special forex by every of the invading forces would have prejudiced the adoption of widespread financial and monetary insurance policies” for occupied Germany, testified the Treasury Division’s Andrew Overby earlier than the Senate committee. 

The Treasury Division requested the Battle Division for steerage. The Battle Division said its concern that the Russian request for printing plates would change into a supply of main friction between the uneasy allies. An April 13, 1944, cable from the U.S. ambassador to the usS.R., W. Averell Harriman, reaffirmed the Soviet intent to print their very own distinct occupation forex in the event that they didn’t obtain the AMM printing plates. The British urged the People to provide the Russians the plates. Although Treasury knew that offering the AMM plates to the Russians would possibly lead to an unchecked circulate of occupation money into Germany, it quickly acquiesced and on April 18 the Bureau of Engraving and Printing delivered a provide of plates, paper, and inks for AMM to the Soviet Embassy in Washington, D.C. The People had actually given the Russians a license to print cash.

SPENDING SPREE

FIFTEEN MONTHS LATER, in July 1945, American occupation forces entered Berlin. They discovered a devastated metropolis, a shattered financial system, a damaged individuals—and a Soviet occupation pressure flush with money. Many Soviet troopers hadn’t been paid for months, even years. When the Soviet occupation forces settled into Berlin, the Crimson Military paid hundreds of troopers their again pay—however in AMM, not rubles. The Russians didn’t permit their servicemen to transform AMM again into rubles, so as soon as the troopers returned to Russia, their pay could be nugatory. 

Soviet troopers started shopping for no matter good issues they might discover in Berlin. “They went out shopping for bicycles, watches, jewellery, something they might use themselves or ship dwelling,” mentioned Colonel Frank Howley, the primary head of American Army Authorities in Berlin. “What they didn’t purchase, they stole—which was so much.” Costs for luxuries—particularly moveable ones—skyrocketed. However there have been solely so many easy-to-carry client items left in war-torn Berlin.

A Soviet soldier buys a wristwatch from a U.S. Military photographer (above). The Soviets coveted watches and costs skyrocketed—a Mickey Mouse watch (under) was described as “value greater than a jewel-studded trinket from Cartier.” (Fred Ramage/Keystone Options/Getty Photos)
(Richard Levine/Alamy)

The People, then again, had loads of good issues. Wristwatches, cigarettes, items from the PX—these appealed mightily to the common Russian soldier. Wristwatches particularly. Russians noticed wristwatches as a visual signal of “affluence and a longtime, even exalted place in life,” Howley defined. “Peasants by no means owned watches.” Howley mentioned Russian troopers would come as much as People asking for “uhre, uhre” (German for “watches” or “clocks”) and that “some Russian troopers wore half-a-dozen watches. A Mickey Mouse watch was value greater than a jewel-studded trinket from Cartier.” And the Russians had the cash to pay. 

That summer time Berlin become one large open-air market. “Within the black market across the Brandenburg Gate, the Russians, Joes and Tommies do a energetic enterprise,” wrote the Chicago Tribune Press Service in early August, whereas an AP story in September reported, “For greater than two months Berlin has been the ‘watch capital’ of the world,” including that “Crimson Military troopers offered a seemingly insatiable marketplace for U.S. timepieces, paying as a lot as $1,500 for a radium face trinket with a loud tick.” (A typical PX watch price $20.) Basic Harry Vaughan visited Berlin that summer time as President Truman’s army aide on the Potsdam Convention and later boasted he offered a $50 timepiece for $500. 

American troopers offered the Soviets items from the PX, cigarettes, even components of their army gear, which the Russians paid for in AMM. “Marks are accumulating by the hundreds within the pockets of GIs,” wrote the AP in September. “It’s nothing for a jeep driver or clerk to flash a bankroll which, if it had been bucks, could be value from $5,000 to $15,000.” AMM had a conversion price of 10 to the U.S. greenback. And, critically, in contrast to their Russian counterparts, American troops may convert AMM again into {dollars}. The state of affairs the People feared in 1944 was coming to move.

Unlawful black markets sprung up all through Berlin in 1945, the place unusual Germans offered items to Allied troopers with cash on their palms. (Popperfoto by way of Getty Photos)
President Harry S. Truman’s aide, Basic Harry Vaughan, boasted he offered his $50 watch in Berlin for $500. (Nationwide Archives)

MORE MONEY, MORE PROBLEMS

THE ARMY EXPECTED that abroad troops would draw a few of their pay in native forex. This allowed U.S. troopers to buy, go to eating places and bars, and pay locals to do their laundry. The Battle and Treasury Departments by no means meant for abroad troops to have massive quantities of international forex. As an alternative, American troopers in Berlin had been awash in AMM.

Treasury’s Overby instructed the Senate committee why that was an issue for American taxpayers, who had been finally liable for paying for the AMM. If an American soldier in Berlin offered a stack of AMM for conversion into {dollars}, it was laborious—usually unattainable—for the finance officer to find out what share of these AMM got here from approved pay, and what number got here from black-market exercise. So most frequently the finance officers merely exchanged the marks for U.S. {dollars}, particularly early within the occupation earlier than tighter controls had been launched. G.I.s used these {dollars} to wire cash dwelling or purchase warfare bonds or different financial savings devices.

G.I.s with suspiciously massive stacks of AMM found out different methods to show their black-market money into {dollars}. They purchased small, costly objects corresponding to jewellery that had been simple to hold (and resell) stateside from Berliners or within the PX—which, like different soldier assist providers, allowed G.I.s to pay in AMM. Likewise, they went to army put up places of work, purchased sheets of postage stamps, and despatched them dwelling. Family would then return the sheets to stateside put up places of work for money refunds. G.I.s additionally used AMM to pay Western Union and the Radio Company of America for wired messages and phone calls dwelling. 

Along with changing troopers’ pay into {dollars}, U.S. Military finance places of work had been additionally obligated to change into {dollars} the AMM the PX obtained from all approved patrons, corresponding to Crimson Cross employees, military civilians, and displaced individuals who’d been employed to protect American amenities. Civilian firms that the military approved to do enterprise with G.I.s in Germany, like Western Union and RCA, additionally requested the military to redeem its occupation forex. The outcome: an enormous quantity of AMM, a lot of it undoubtedly produced by Russian plates, was exchanged for actual U.S. {dollars}.

Effectively-stocked U.S. Military Submit Exchanges in Germany offered a helpful provide of products that G.I.s offered to their Soviet counterparts for fistfuls of AMM. The U.S. authorities was obligated to honor the AMM—blowing the occupation funds out of the water. (U.S. Military)

The Pentagon requested the US Forces European Theater, the military’s first postwar command in Europe, to implement forex controls. However many military commanders in Europe balked. In the summertime of 1945, the military’s consideration in Europe was on transferring hundreds of troops to the Pacific for the invasion of Japan. In autumn, the military centered on demobilization and redeployment, and enthusiasm for forex change management was restricted. Items in Europe continually reorganized as skilled troops had been despatched dwelling. That left a lot of inexperienced leaders on the decrease command ranges—the degrees the place most forex change occurred.

By the autumn of 1945, the American media picked up the story. “American troopers despatched dwelling extra money in August than they drew from the pay window,” mentioned the AP in September, noting that “figures revealed as we speak from the Berlin district finance workplace confirmed that $3,044,224 was paid to occupation troops, who then invested $3,153,517 in cash orders, private switch accounts, warfare bonds and troopers’ deposits.” Washington knew it was on the hook to pay for all these Russian-printed AMM that U.S. troopers had redeemed. 

Paying THE TAB

IN JUNE 1947, the Senate held hearings on the AMM affair—the place Overby and different U.S. officers gave their testimony. By then, although, the military had solved the issue. In 1946 it switched to army cost certificates, or “scrip,” to pay the troops in Germany. Scrip was accepted solely at approved retailers, just like the PX—tremendously limiting the G.I.s’ potential to make use of their pay for black-market actions—plus the army started to strictly regulate the power of U.S. personnel to transform native and occupation currencies into {dollars}. However the harm had been carried out. By June 1947, the invoice had arrived. The associated fee to American taxpayers to cowl the redeemed AMM was $250 million greater than what Washington had budgeted for occupation cash in Germany—roughly $3 billion in as we speak’s cash. No marvel the Senate was mad.

However many commanders and troops, particularly those that served in fight, felt they’d earned the correct to profit in some small approach from their wartime experiences. These troops, and their households and associates, had been additionally voters. Lieutenant Basic Lucian Truscott, who commanded the Fifth and Fifteenth Armies in Italy, and changed George S. Patton as commander of the Third Military in Germany, spoke for thousands and thousands of G.I.s when he argued to the Senate committee:

The [American] soldier may see no purpose why he shouldn’t promote private objects which he had bought, or which had been despatched to him from dwelling, if he so desired…. Letters from dwelling, newspapers and radios knowledgeable him that many at dwelling who had not suffered his hardships had been making earnings from the warfare, as he felt, at his expense. He may see no purpose why he shouldn’t make a small revenue now when he had, for the primary time, a small alternative to take action.

Lieutenant Basic Lucian Truscott defended the G.I.s throughout 1947 Senate hearings on the AMM affair. (Library of Congress)

Many People nonetheless feared—together with Senator Types Bridges of New Hampshire, who chaired the committee that investigated the AMM affair—that, as he put it, “a big sum of their tax {dollars}” had been used to “furnish a free experience to the Russians by way of printing press cash of our personal devising.” Comprehensible. However, within the spring of 1944, Washington had had a lot greater issues to fret about, together with appeasing their contentious ally to the east. Thus, the Allied Army Marks episode ended up as one of many many unlucky however unavoidable unintended effects that occur when governments conduct large operations, like a world warfare. The American taxpayer did find yourself furnishing a “free experience,” as Senator Bridges had feared—however to American G.I.s, not Russians. ✯

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